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alexjray

The fed has pumped 2.3 trillion dollars into the economy in the past six weeks....

I don't see how the dollar won't crash eventually. Why would foreign countries still buy US bonds?

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You only think the situation in America is bad because that's all you hear about.

The current Federal Reserve balance sheet is 7 Trillion dollars, or 35% of the US GDP[1].

The current Eurosystem Bank balance sheet is 7.9 Trillion dollars, or 43% of the EU GDP[2].

If you're worried about pumping money into the economy, then USD is a much safer investment than EUR for you.

[1]https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

[2] https://www.ecb.europa.eu/press/pr/wfs/2020/html/ecb.fst2010...

EDIT: clarification for those unaware, the EUR/USD currency pair is the most traded currency pair by far (which is why I chose Europe as a comparison). The distant second place most traded currency is USD/JPY, but Japan famously has a national bank balance sheet even greater than its own GDP.

Japan's central bank's assets are 690 trillion yen... Their GDP is 505 trillion yen. 136% of GDP. Ouch.

Because the dollars have not been permanently pumped into the economy, and the world has faith that the Fed will shrink its balance sheet.

Printing money and lending it out, and then burning the money when it's repaid, is very different than printing money and using it to buy goods and services.

I think this thread needs an ELI5 for how the whole process works from the ground up as there seems to be a lot of popular misconceptions.

That would be incredibly useful

This Planet money episode addresses the whole topic of where the Fed is getting all the money from, and how inflation fits into the picture. I found it pretty helpful.

https://www.npr.org/transcripts/821787090

That's a best case scenario and feels overly optimistic. What are the chances it gets fully repaid?

Assuming society continues onward, it doesn't really need to be fully repaid. The value is in the organization and structure of society. However, war, environmental catastrophes, population decline, and loss of trust between citizens of a nation can cause a decrease in the predictability of actions and consequences in society, and that would be a problem for any debt issued with rosier assumptions.

It cannot be repaid, ever, because the interest exceeds the amount of money that is currently in existence, which means they will always have to borrow more money (which is created out of thin air) to service the debt.

Interest on the national debt is $400-$600 billion per year depending on what you count (a lot of it is paid to the federal government itself). It's a lot of money, but it's a small fraction of the federal budget. It's also less than the amount of money in existence - M1 is $5.5 trillion and can easily be expanded, as mentioned.

(It also wouldn't necessarily matter if the interest per year were greater than the total amount of money in existence. If the money supply were $20, that wouldn't make it impossible for me to pay you $21/year; I could pay it in 21 $1 payments.)

because everyone else did similar printing. https://www.cnbc.com/2020/07/21/eu-leaders-reach-a-breakthro...

Japan is the perfect example that a country with a sovereign currency doesn't need that nobody buy their bonds. They have been doing this for years and they don't have hyperinflation but the opposite.

But logic alone should tell us that already. When foreign countries buy US bonds can only buy them with dollars. You can't buy US bonds with another currency. Where are those dollars coming from?

Because what's the alternative to US treasuries? Everything else in the world is either more unstable or offering zero yield.

Gold?

For all you know the gold price can halve if there is an economic recovery sooner than expected. The same drastic movement (either way) is not going to happen to US bonds.

If there's a big jump in inflation, the same drastic movement is exactly going to happen to US bonds.

Gold

Zero yield is golden for the next x number of years. A ship in the harbor isn't making you money but it's also not getting destroyed in the storm.

Because the alternatives are even worse. Anyone with money is still better off buying US bonds knowing that the euro or the renminbi or even physical assets like gold are even more volatile.

Because everywhere else is a little worse.

You can loose 2% in the US, but 10% in Italy.

So what do you want to do?

If this crisis were specific to the US, things would be different.

Also, with seigneurage of the US dollar, it gives a lot of elasticity to the process. Put another way 'The USD is also a big international currency that everyone else depends on somewhat'.

As long as we are the world's reserve currency we can do practically whatever we want.

I think what you're seeing is the end of that.

This is exactly right. People love to claim that we can print unlimited money because we are the reserve currency, yet the entire underlying collateral of the international trade system that preserves this is international us treasury repo markets (eurodollars), which becomes totally untenable as that becomes a negative carry position with real negative yields.

The further we go down that line, the more attractive dedollarization becomes.

And go where? European central bank assets are at 53.1% of GDP, Bank of Japan assets are at 125.7% of GDP, and the US FED is at 34.4% of GDP [0]. But hey, you could go with the chinese yuan, they "only have a 36% assets to GDP ratio" if you trust them.

[0]: https://www.yardeni.com/pub/peacockfedecbassets.pdf

That's been the story for a while, right? It was the reserve currency. Where else are you going to go? And what I'm saying is that I think you'll see in the coming year or two how it plays out.

I personally see it being a slow death that drags out over a decade, not a big sudden event that happens in the next two years but I agree with your premise.

This is correct but it is not the whole picture. If all the existing options that look like the previous setup are bad, you might find that whatever setup we move to, does not look like the old setup.

There is no law of physics that there has to be one underlying global reserve fiat currency. That is basically a historical oddity that was a result of our huge creditor position vs Britain at the end of WW2.

Going forward look for a basket of currencies, which could include gold, and potentially even crypto. Of course this is speculation.

Yes, that is a conditional. We won't remain the world's reserve currency forever.

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